Tuesday, September 06, 2011

A way out of economic meltdown

In the article Labor Day Blues, Robert Samuelson points out:
To reduce unemployment, the economy must create enough new jobs to absorb entrants into the labor market and the existing out-of-work. Shierholz has calculated how many jobs would be needed to lower unemployment (9.1 percent in August) to 5 percent over five years. Her estimate: 16.9 million. That's an average of 282,000 jobs a month. The trouble is that this rate of job creation far exceeds the present level (105,000 a month since early 2010) or even the level (240,000) achieved during the boom between 1993 and 2000.

You can tinker with Shierholz's assumptions, but the main conclusion doesn't change. Even with rapid job growth, unemployment will descend slowly. With sluggish growth -- or another recession -- it may remain high indefinitely. There are no quick fixes. Unemployment will increasingly define our economic prospects and politics.

...Still, high joblessness' harshest effects fall on the jobless. "We're creating a bifurcated society," worries Harvard economist Lawrence Katz. "We're talking about a lost generation of younger workers and displaced workers." Younger workers have a harder time starting careers. Because many skills are developed on the job, long unemployment spells can lower lifetime earnings.
(via Instapundit)

It is the youngest workers who are going to need new jobs the most. It is those entry level jobs that provide the most real-world education to a young person. Clearly, focusing attention on getting young people working has merit. So what can governments do?

The first thing they can do is look at what has already been done and examine the results. For decades, program after program has been introduced, policy after policy enacted, all intending to get young people working. Which of these have actually produced positive results? Which have failed?

The second thing to do is realize that the list of successes is very small. Indeed, it seems every time governments enact a new program or department or law intending to increase youth employment, the problem gets worse.

Let's take minimum wage laws, as an example. Suppose in some jurisdiction the minimum wage is $7 an hour. An employer, perhaps a new restaurant, has $56 per hour budgeted for entry-level employee positions. Therefore, they can hire 8 young people for their first jobs. But wait! The government of that jurisdiction raises the minimum wage to $8 an hour. The restaurant's sales haven't changed. Now there are only 7 entry level jobs available. Minimum wages laws are just one example of the job-destroying effects of trying to solve a problem by adding new rules, regulations, laws, programs and so forth for employers to deal with.

Here's another example. It is nearly impossible for a young adult starting from scratch to open their own business in much of the Western world; it is doubly difficult to do legally if that young adult wishes to employ anyone else. The amount of paperwork that is required for legal compliance with the myriad regulations and laws and bylaws across various levels of government and government agencies is beyond daunting. In Europe, if they printed it all out, the paperwork would run to something like 10 railway boxcar loads. 99.9% of all the red tape is completely irrelevant.

On the other hand, if the process of starting a small business was simple enough for an 18 year old to do in an afternoon, and if the paperwork required for operation massively reduced, then the unemployed (not just the young unemployed) would be starting businesses of their own and creating jobs.

That's not to say that all regulation and law must end. What it means is that the vast majority of such are completely unnecessary. Eliminate these unnecessary impediments, get the hell out of the way, and watch the economy recover.